GST 2.0 Reforms:A Bird's Eye View

The 2025 GST overhaul marks a departure from the current 4-tiered tax rate system towards a citizen-friendly 'Simple Tax', 2-rate structure, making it simpler for businesses and consumers alike. This transition is a product of recommendations made by the 56^th GST Council, heralding "GST 2.0"—a next-generation tax regime prioritising simplicity and trust-based compliance. This article attempts to provide a summary of changes recommended in the 56^th GST Council Meeting.

A.Summary of GST Rate Changes

Old vs. New Structure

India's GST previously operated on four principal tax slabs—5%, 12%, 18%, and 28%—plus special rates for select supplies.

These have been consolidated into:

• Merit Rate: 5% (for essentials and priority sectors)
• Standard Rate: 18% (for most goods and services)
• Demerit Rate: 40% (for luxury/sin goods)
• Nil/Exempt (for specific health, education, and dairy products and necessities)

The changes in rates of GST (which have been made effective from 22^nd September 2025) were notified by the Government on 17^th September 2025 vide Notification No. 9/2025 Central Tax (Rate) for goods and by way of Notification No. 15/2025 Central Tax (Rate) for services.

A wide range of goods and services that were earlier taxed at 12% or 18%, including processed foods, specified garments, agricultural machinery and hotel accommodation services, have now been brought under the 5% slab, offering significant relief to consumers and small businesses. Similarly, automobiles and electronic appliances, which previously attracted up to 28% GST, will now be taxed at 18%, while lifesaving drugs, medical apparatus, and devices have seen a substantial reduction to either Nil or 5%, enhancing healthcare affordability.

GST on labour-intensive goods such as handicrafts, marble and travertine blocks, granite and intermediate leather products has been reduced from 12% to 5%. Gyms, salons, barbers, and yoga centres will now attract a lower rate of 5%, down from the earlier 18%.

Additionally, through Notification No. 14/2025–Central Tax (Rate), the Government has prescribed a 12% GST rate (6% CGST + 6% SGST) on fly ash bricks, building bricks, aggregates, earthen and roofing tiles, aligning tax policy with sustainable infrastructure development.

The Government, through Notification No. 10/2025–Central Tax (Rate), has provided exemption from GST on various essential goods.

With respect to GST Compensation Cess, the Government has amended Notification No. 1/2017- Compensation Cess (Rate) dated 28^th June 2017 vide Notification No. 2/2025- Compensation Cess (Rate) dated 17^th September 2025 to notify the changes in compensation cess rates.

However, certain items such as pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco, and bidis will continue to attract the existing GST rates along with applicable compensation cess, until the outstanding loan and interest obligations under the compensation cess account are fully settled. Furthermore, GST on these tobacco-related products will now be levied on the Retail Sale Price (RSP) instead of the transaction value, ensuring better transparency and compliance.

Insurance Sector

The Government, on the recommendations of the GST Council vide Notification 16/2025 Central Tax (Rate) dated 17-September-2025, has made a significant change in life insurance services, health insurance services and reinsurance services of the same by exempting these services from GST where the insured is not a group.

These exemptions have been added as Entry no. 36C, 36D and 36E to Notification 12/2017 CT(R).

Readers may specifically note that the above exemption shall not apply to group insurances but shall apply specifically to a contract of insurance where the insured is an individual, or an individual and family.

(Family for the above purpose shall include all individuals insured as family in the contract of insurance).

Further, the term 'Group' for the above-mentioned exemption purpose shall mean "group of persons who join together with a commonality of purpose or for engaging in a common economic activity, other than availing insurance, and includes:

• a. Employer– employee groups, where an employer-employee relationship exists between the master/group policyholder and the members of the group in accordance with the applicable laws;
• b. Non employer– employee groups, where a clearly evident relationship exists between the master/group policyholder and the members of the group, for services/activities other than insurance."

Local Delivery Services

Local delivery services have been inserted under Section 9(5) of the CGST Act vide Notification No. 17/2025-Central Tax (Rate) dated 17^th September 2025, in cases where the person supplying such services through electronic commerce operator is not liable for registration under GST. The applicable rate on such services is 18%. Further, local delivery services provided by and through an ECO have been excluded from the scope of GTA services.

'Specified premises' in the Context of Taxability of Restaurant Services

The Council has recommended to add an explanation to the definition of 'specified premises' in the context of taxability of restaurant services in order to clarify the position that a stand-alone restaurant cannot declare itself as a 'specified premises' and consequently cannot avail the option of paying GST at the rate of 18% with ITC.

Thereby, the Government by virtue of Notification No. 15/2025 Central Tax (Rate) dated 17^th September 2025, has inserted an explanation (effective from 1^st April 2025) to para 4, in clause (xxxvi) of Notification No. 11/2017 Central Tax (Rate) read with Notification 05/2025 Central Tax (Rate) dated 16^th January 2025 that 'premises' shall mean a place from where hotel accommodation services are being supplied or are to be supplied.

B.Legislative Changes

The GST Council's 56^th meeting produced not only rate reforms but also substantial legal and procedural improvements that define the GST regime's future trajectory.

Introduction of Simplified Registration Scheme for small suppliers supplying through electronic commerce operators

Businesses, especially small suppliers and persons supplying through e-commerce platforms, benefit from streamlined registration and automated returns, reducing administrative burdens and improving compliance.

The Council approved in-principle the concept of a simplified GST registration mechanism for small suppliers, making supplies through e-commerce operators (ECOs) across multiple States facing challenges in maintaining principal place of business in each State, as currently required under the GST framework.

It is expected to ease compliance for such suppliers and facilitate their participation in e-commerce across States.

Simplified GST Registration Scheme for Small & Low-Risk Businesses

In order to simplify the registration process, the Council has recommended the introduction of an optional simplified GST registration scheme wherein registration shall be granted on an automated basis within three working days from the date of submission of application in case of low-risk applicants and applicants who, based on their own assessment, determine that their output tax liability on supplies to registered persons will not exceed Rs. 2.5 lakh per month (inclusive of CGST, SGST/UTGST and IGST). The scheme will provide for voluntary opting into and withdrawal from the scheme.

This optional scheme is expected to benefit around 96% of new applicants applying for GST registration and is expected to be operational from 1^st November, 2025.

Post Sale Discounts

Clear statutory amendments regarding post-sale discounts have been introduced to reduce litigation and ambiguity.

CBIC has clarified on the below mentioned aspects in respect of post supply discounts vide Circular No. 251/08/2025-GST dated 12^th September, 2025.

The Circular clarifies on—

• i. non-reversal of Input Tax Credit on account of post-sale discount through financial/commercial credit note;
• ii. treatment of the post-sale discount provided by manufacturer to the dealer as additional consideration, in the transaction between dealer and end-customer;
• iii. treatment of post-sale discount as consideration in lieu of promotional activities etc. performed by the dealer.

Further, the Council has also recommended for amendment of Section 15 and Section 34 of the CGST Act, 2017 in respect of Post Sale Discount. In this regard, the Council has recommended:

• To omit Section 15(3)(b)(i) of the CGST Act, 2017 thereby omitting the requirement of establishing the discount in terms of an agreement entered into before or at the time of such supply and specifically linking of the same with relevant invoices,
• To amend Section 15(3)(b) of the CGST Act, 2017 to provide that discount should be granted through a credit note issued under Section 34 of the CGST Act and to correspondingly amend Section 34 to include a reference to Section 15(3)(b), so as to provide for reversal of Input Tax Credit by the recipient in case where a post-sale discount is given and value of supply is reduced through the GST Credit note.

The CBIC, vide Circular No. 253/10/2025 – GST dated 1^st October 2025, in order to ensure uniformity, has withdrawn Circular No. 212/6/2024-GST dated 26^th June 2024 wherein clarifications were given in relation to mechanism for providing evidence of compliance of conditions of Section 15(3)(b)(ii) of the CGST Act, 2017 by the suppliers. Therefore, the procedure prescribed vide the aforesaid circular for providing evidence of compliance of conditions of Section 15(3)(b)(ii) shall not be required.

A summary of the Circular is given below for readers' reference

Place of Supply for Services

For intermediary services, the Council recommends omission of clause (b) of Section 13(8) of the IGST Act 2017. Accordingly, after the said amendment takes place, the place of supply for "intermediary services" will be determined as per the default provision under Section 13(2) of the IGST Act, 2017 i.e. the location of the recipient of such services.

This will help Indian exporters of such services to claim export benefits and bolster the competitiveness of Indian exporters.

System-Based Risk Evaluation for Provisional GST Refunds

In a major move to streamline GST refund processes and enhance trade facilitation, the GST Council recommended amendments to certain CGST Rules. In relation to the above, the Government has issued Notification No. 13/2025 -Central Tax dated 17^th September 2025, making changes with effect from 1^st October 2025 in rule 91(2) and further issued instruction vide Instruction No. 6/2025 – GST dated 3^rd October 2025.

Few key points of the above Notification and instruction include:

System-Driven Risk Assessment: Refund claims will now be provisionally sanctioned (90% of the claimed amount) based on risk categorization by the system. Applications categorised as "low-risk" will be fast-tracked for provisional refunds.

Officer's Discretion – Proviso to Rule 91(2): In applications not categorised as "low-risk", refund shall not be sanctioned on provisional basis and in such cases, the proper officer shall proceed with detailed scrutiny of refund application.

Exclusions from Provisional Refund: The Government vide Notification No. 14/2025-Central Tax dated 17^th September 2025 has provided the following category of registered persons who shall not be allowed refund on provisional basis:

• (i) Any person, who has not undergone Aadhaar authentication under rule 10B,
• (ii) Any person, who is engaged in the supply of areca nuts or pan masala or tobacco and manufactured tobacco substitutes or essential oils.

Provisional Refund for Inverted Duty Structure (IDS): Pending legislative amendment to Section 54(6), the government has, as an interim measure, permitted provisional sanction of 90% of IDS refund claims filed on or after 01.10.2025, under the same process and conditions as for zero-rated supplies.

This system-led, risk-based refund mechanism marks a significant shift in GST administration, balancing trade facilitation with fraud control. While easing genuine taxpayer burdens, it ensures accountability and careful scrutiny where risks are high.

C.GSTAT Operationalisation

The Goods and Services Tax Appellate Tribunal (GSTAT) will be made operational and will commence hearing before the end of December this year, providing speedy dispute resolution and reducing strain on High Courts. The Council also recommended the date of 30.06.2026 for limitation of filing of backlog appeals.

The Principal Bench of the GSTAT will also serve as the National Appellate Authority for Advance Ruling.

These measures will significantly strengthen the institutional framework of GST by providing a robust mechanism for dispute resolution, ensuring consistency in advance rulings, and offering greater certainty to taxpayers. This will further enhance trust, transparency, and ease of doing business under the GST regime.

Future Outlook & Conclusion

The 2025 GST reforms in India, spearheaded by the recommendations of the 56^th GST Council meeting, represent a major leap toward simplification, efficiency, and inclusiveness in indirect taxation. The move to a 2-rate structure of 5% and 18%, combined with select higher rates for sin goods, reduces costs for businesses and consumers, makes compliances smoother, and boosts consumption and manufacturing. The reforms have intentionally omitted the reinstatement of anti-profiteering measures, relying instead on trust in businesses to pass on benefits to consumers. The Council's commitment to technology-driven, trust-based administration enhances transparency and positions India's GST regime at par with global best practices.

These changes, effective from 22^nd September 2025, will have profound long-term impacts on the economic landscape, promoting ease of business, resolving litigation issues, and improving the quality of life for millions of Indians. With simpler rates, faster refunds, and strategic legal amendments, GST in India stands poised for a new era of growth and stability.